City announced the transfer on Thursday following Susaeta's brief stint with Japanese giant Gamba Osaka, who the Spaniard joined in September.
Athletic great Susaeta – a one-time Spain international – is a coup for City following his 507 matches for the LaLiga side, where he sits fifth on the all-time appearances list.
Susaeta had planned to see out his career with Athletic but the 32-year-old left the Basque club at the end of the 2018-19 season, going on to play just 165 minutes of football for Gamba.
"I'm excited to be joining Melbourne City for the rest of the season and can't wait to get started in Australia," he said.
"I'm hoping I can help the group play the exciting, attacking football the club prides itself on and achieve the success the group has set out at the start of the season."
City director of football Michael Petrillo added: "We're incredibly pleased to have a player like Markel at Melbourne City.
"Markel is a player that is well suited to the style of game we have implemented under [head coach] Erick [Mombaerts] and a player who will add flair, potency and experience to our front third.
"We have been tracking Markel for quite some time now so to be able to get him into the squad is testament to the club and its ability to attract a player of Markel's pedigree.
"His outstanding record at Athletic Bilbao speaks for itself and his experience in LaLiga and Europe will lift the whole squad as we look to continue our push towards the latter stages of the season."
City is second in the A-League this season, 11 points behind leaders Sydney FC after 13 matches.